Newsletter

Energy premiums in Belgium​: an analysis of the regional subsidy policies and their impact on energy consumption savings

Through the Energy Efficiency Directive, the European Union has instructed its member states to reduce domestic energy-consumption by 1,5 % each year until 2020 [1]. To attain this target, they are expected to develop concrete schemes to improve energy-efficiency. In Belgium, energy premiums are the main measure to incentivize energy-efficiency initiatives. These premiums, defined by policy-makers in the 3 regions, subsidize certain investments that improve energy-efficiency, such as improved insulation or more efficient heating. In this article, Sia Partners takes a look at the energy premiums for residential households in the different Belgian Regions and the impact they have on energy savings and CO2 reduction.

Residential Energy Consumption in Belgium The energy needs of households are slowly evolving

Despite growing disposable incomes, household energy consumption has decreased over the past 25 years. Figure 1 shows the evolution of total household energy consumption per m² in the Belgian regions. On average, the household energy consumption decreased by 0,7 % per year in Flanders, by 1,1 % in Wallonia and by 0,9 % in Brussels. Today, average consumption levels per m² are quite similar in Flanders, Wallonia and Brussels. In absolute numbers, consumption per household in Brussels is on average 40 % lower than in the other regions, due to the smaller heated surfaces of residences and the smaller average size of households [2].

Source :Author’s analysis based on [2], [3], [4] and [5] Source: Author's analysis based on [2], [3] and [4]

As identified in Figure 2, the slow downward trend in domestic energy consumption is the result of two counteracting forces; an increase in the electricity needs is outweighed by a decrease in the use of combustible fuels for heating and. On the one hand, the consumption of combustibles for domestic heating (I.e. fuel oil, gas, wood) has is estimated to have decreased by 27 %, the result of a number of factors, such as rising commodity prices and the introduction of stricter building regulations in terms of energy-efficiency. Over the past decades the insulation requirements for new residences have become much more stringent, while the efficiency of heating technologies has improved as well, leading to a reduction in the use of the various combustibles. On the other hand, the household consumption of electricity has increased by 20 %. This rise in electricity-intensity is attributable to the widespread adoption of new technologies such as PC’s, multimedia and internet. To further reduce the energy-needs of many existing household residences, structural improvements to their energy-efficiency are required. Initial investment costs of these type of improvements can be high, putting off home-owners. The energy premiums have been created to encourage households to invest in measures increasing the energy-efficiency of their home, both in the case of a new buildings and renovations. By reducing the initial investment cost, the pay-back period of the investment is shortened and the total lifetime benefits of the investment are increased.

Energy premiums, an overview

The different types of energy premiums currently available to residential house-owners Belgium can generally, be grouped into 3 categories: insulation improvements, domestic heating investments, and efficiency studies/audits. Their availability and savings potential is illustrated below:

Premiums for different types of insulation measures are available in all 3 regions. Indeed, insulation of roofs, external walls and floors significantly lowers households heating demands and can render extensive savings in household electricity consumption. Replacing single or double glass windows with super-insulating or high efficiency glass is another measure that greatly reduces heat transfer between the residence and its environment. Once a residence is properly insulated, it often becomes worthwhile to invest in a controlled mechanical ventilation system. This type of system optimizes the in- and outflow of air, in order to limit thermal losses to a minimum.

A number of efficient heating technologies are supported. All 3 regions support the installation of a high efficiency condensing boiler. Indeed, modern condensing boilers can reach thermal efficiencies of around 90 %, about 20 % more than conventional systems [7]. Heat pumps can be seen as a more efficient alternative for heating and hot water production. Modern heat pumps can reach of a thermal efficiency of 300 %, meaning every kWh of electricity used, produces 3 kWh of heat [8]. Indeed, heat pumps present a very green option compared to boiler heating but they do have some drawbacks, among which a high initial investment cost. Hence, premiums can form an important tool in speeding up their adoption. A sun boiler is another alternative to gas- or oil-fired boilers. This systems allows household savings on the annual cost of heating up to 60 % [9].

The regions support different types of residence energy studies. The Walloon and Brussels Region offer premiums for” Energy Audits”. A recognized energy auditor visits and analyzes the residence to determine the savings potential for the owner and the recommended efficiency measures to be carried out. This way, the household can receive a clear plan of which measures to prioritize. The Flanders region has taken another approach. Each new residential building has to achieve a required energy efficiency threshold (by implementing some of the efficiency measures described above). If the building exceeds this efficiency threshold, a premium, in proportion to the extent of the achieved energy efficiency, is awarded.

Energy Premiums in the different regionsHow much can the average household profit?

In each region, all premiums have their own specific constraints and requirements to which an application has to adhere. In Flanders, the Energy premiums are managed and awarded by the DSO’s. In Wallonia and Brussels, the regional energy public services control the premium schemes. As a result of these asymmetries, the premium amounts available to households can differ between the regions.

Figure 3 shows the premium amounts of the most important energy premiums in the 3 regions for works on an average sized residential home. In Wallonia and Brussels, the level of the premiums is dependent on the household income. Here the case is taken for an average two-income household, both earners with the median Belgian combined net taxable income of € 23000 [10], giving a household income of € 46000 per year.

Figure 3: Premium amounts for the average Belgian household

Source: Sia Partners’ analysis based on [11], [12], and [13]

Significant differences exist between the level of most premiums in Flanders and Wallonia on the one hand, and the Brussels region on the other hand. On average, the nominal premiums amounts offered for identical or very similar energy efficiency works are up to 170 % higher in Brussels than in the other regions. This large difference can be partly explained by the urban density in the Brussels region and the comparatively older age of the housing patrimony, increasing the cost of some works.

It is worthwhile to note Wallonia and Brussels have developed a stepped premium system, in which the level of the applicable premiums are dependent on the total income of the household. In Flanders, the premiums are identical for everyone, except for some exceptions and additional premiums for very low income households. On the one hand a stepped system can be good way for government to balance the limited budget, on the other hand it increases the complexity and paperwork for applicable households.

Analyzing the impact of Energy PremiumsDifferences in regional expenditure and associated CO2 savings

Figure 4 shows the evolution in the budget of Energy Premiums and Energy Loans, the two main energy-efficiency subsidies for the residential sector in the Belgian regions in the past years. Energy Loans are low interest (0-2 %) loans granted by the regional governments that can be obtained for a list of energy-efficiency investments. This includes most of the measures supported by an energy premium. Both subsidies can be combined.

In Flanders, a strong fluctuation in support can be noticed over the last years. This is because there is no fixed budget ceiling, at least not one communicated to the public beforehand, so the yearly budget expenditure is dependent on the number of premium applications. Indeed, the amount of premium applications has fluctuated heavily in the past years, due to changes in the system and uneven public & press attention for the premium. Recently, more focus has been put on promoting cheap energy loans, to support the premium system.

In Wallonia, the premiums budget per household has been steadily decreasing in the past years, from almost € 50 per household to only € 25 per household. This is partly due to a tightening government budget, but also due to a partial shift of the focus to the energy loans system for energy-efficient renovations, whose budget has risen to € 85 million in 2015 and future a target of € 100 million per year [17].

In the Brussels Region, the allocated budget for energy premiums grown steadily, indicating sustained government support for the energy premiums. On a per household basis, the premiums budget in Brussels is similar to Flanders’ and Wallonia’s. However, as seen in Figure 3, the nominal premium amounts are often much higher in Brussels. In Brussels, comparatively fewer premiums of higher value are awarded compared to the other regions. Energy loans are available in Brussels, but their adoption by the public is limited, and numbers on the budget are not communicated. They are currently not a focal point of the region’s energy-efficiency incentives and policy.

The energy premiums schemes in the 3 regions are marked by a lack of consistency and stability, as can be observed trough the fluctuations in expenditure over the past years. The focus and vision of the responsible governments has not been sufficiently defined, leading to repeated changes in terms of budget, system structure, and type of premiums offered. Moreover, energy loans seem to have returned to the foreground in recent years, with budget and public interest on the rise. It is important a good balance is found between premiums and loans, as they both offer a significant incentive to potential investors. The lack of stability and focus in the past years has negatively impacted the perception of potential premium applicants. Less than 50 % of households think that energy premiums can have a significant impact on the renovation projects they are considering, while more than 60 % has no idea where to could get more information on premiums relevant for them [19].

The impact of the energy premiums on the energy consumption in Belgium is, despite the lack of stability in the schemes, quite significant. Through analysis of the premium expenditures and information on the applications for the different types of premiums, where available, Sia Partners estimates that around 190 000 to 283 000 tonnes of new CO2 emissions savings were achieved in 2015 by energy-efficiency works in the residential sector, carried out with the support of energy premiums (Figure 5)2. Total annual greenhouse gas emissions by households in Belgium are estimated at 28 000 kilotonnes [20], meaning household emissions were reduced by 0,7 % to 1 % through energy premiums awarded in 2015. The average household’s energy consumption is responsible for 9 tonnes of CO2 emissions per year [21]. The equivalent of the annual energy consumption of 21 000 to 32 000 households in CO2 savings was thus achieved by investments supported by energy premiums, in 2015 alone.

CO2 savings per household differ between the regions because of the different approach taken. In Brussels, nominal premium amounts are often higher, and offer a stronger financial support to applicants. However the smaller total of premiums awarded also results in less CO2 savings. Furthermore, energy-efficiency works carried out without the help of premium, or only with the help of an energy loan, are not taking into account here due to limited-availability of these figures.

Figure 5: CO2 savings in 2015 achieved through energy premiums

Source: Sia Partners’ analysis based on [6] and various sources

Way forward for Energy Premiums in BelgiumFocus on clear policy and more effective communications

There is significant room for improvement regarding the streamlining of the energy premiums framework, and to further increase their impact on energy savings. Public perception around the energy premiums can be described as lacklustre [19]:

67 % of Belgian households building or renovating their home indicate they do not apply for energy premiums because the conditions to be met seem too strict.

Only one third of building or renovating households say they have a proper idea of how much energy premiums could increase the yield of their investment and whether it is interesting for them to submit a premium application.

More focused communication and marketing are key to improving the impact of the premiums. Making publicly available and actively spreading the numbers of premiums awarded and their impact on energy savings, like done in this article, would boost the press attention for the subject and improve the perception of the targeted public.

Clear and stable subsidy schemes, easy to understand for non-experts, are also important. A clear overall picture of energy-efficiency subsidies is needed; with clear schemes, efficient measures, clear stable budgets, in order to convince the public of their added value. In Wallonia, the amount of premiums was already reduced, from over 60 different types before. Flanders and Brussels are taking similar steps, reducing the number of premiums available over the years and simplifying the administrative process for requesting premiums [22]. The priorities today and in the future for an effective energy-efficiency support model are clear:

An accessible premiums framework, marked by a limited number of different premiums and clear qualifying conditions.

Prioritize the efficiency measures with the most impact on household energy consumption, by optimizing the level of the different available premiums.

A short and efficient application process that requires minimal input and follow-up by the applicant

A system that does not exclude low-income households from energy-efficiency measures by offering them higher or additional premiums

Developing awareness for energy-efficiency in general, and for the energy premiums and the financial savings they can offer to regular households, by communication more actively on the positive impacts of the premiums on energy savings, both in financial and environmental terms.

Conclusion

A lot of progress has already been made in reducing the energy-intensity of Belgian households Thanks to the increased awareness and stricter building regulations, the average household energy consumption has by decreased by 0,7 % to 1,1 % per year in the different Belgian regions since 1990. To attain the 1,5 % energy savings per year, set out by the EU Energy Efficiency, in residential households, further efforts have to be made. The energy premiums, available in the different Belgian regions, are an important tool to help house owners make their home more energy-efficient. Sharp differences exist between the regions in the type, format and level of the premiums. However, the lack of long-term stability and focus in the premium policy is common for all regions. The impact on household perception is clear: in less than 50 % of cases where households decide to invest energy-efficiency measures, their decision is influenced by the availability of premiums. However, analysis in this article also shows that the energy premiums are still impactful: Between 190 000 and 283 000 tonnes of CO2, the equivalent of the annual consumption 21 000 to 32 000 households, was saved by new energy premiums in 2015 alone. A transparent premiums system, accompanied by a more active communication on results and societal impact, as well as on the financial benefits for individual households can provide a way to increase the adoption of the premiums and accelerate the reduction of energy consumption in the residential sector.

1 Based on Sia Partners’ analysis for the average sized house in Belgium, with none of these efficiency measures already implemented, using data input from [6].2 Due to the limited availability of specific premiums data, a margin of error is applied to selected assumptions. A minimum and maximum number are presented, between which actual result is situated.